Goldman shouldn't be judged as evil empire

By IBT Staff Reporter On 04/27/10 AT 12:40 AM

Goldman Sachs Group Inc will want a judgment based on 'merits and facts' in the fraud case against it rather than popular opinion that it is an 'evil empire', a senior lawyer from the firm that represents it said on Monday.

Fraud charges filed against Goldman by the U.S. Securities and Exchange Commission have come at the same time as a broad legislative push by President Barack Obama and his fellow Democrats. The suit charges that Goldman hid vital information from investors about a subprime mortgage-linked security.

It is appropriate to base a judgment on the merits and the facts as they ultimately emerge in full, and not to base a judgment on the 'evil empire' theory, which isn't a question of legality or illegality, but what some in the media prefer to stir up, said Rodgin Cohen, Partner at Sullivan & Cromwell, speaking at the Milken Institute Global Conference.

Sullivan & Cromwell partner Richard Klapper is the lead lawyer defending Goldman against the SEC's charges.

Goldman says that it has lived up to its heritage as a client-centered firm, and did not bet against clients to whom it sold subprime mortgage-related products.

I can't say too much here, but I will say that when we bring a case, we think we have got pretty good evidence, said Richard Ferlauto, deputy director, Policy Office of Investor Education and Advocacy at the SEC. We will have to see what comes out. But certainly, I think Goldman is wishing that it weren't a public company.

Some clients and investors in the firm are cautiously watching the situation.

Pension fund Calstrs' chief investment officer said the fund was monitoring the situation but that it was not altering its business relationship with the bank.

We'll assume they're innocent until they're proven guilty, said Christopher Ailman, CIO of the California State Teachers' Retirement System, on the sidelines of the conference.

Joseph Dear of Calpers, the $213 billion California Public Employees' Retirement System, said Goldman was clearly working hard to maintain trust, among their counterparties and investors.

Asked what Calpers reaction would be if Goldman was found to be guilty, he said the pension fund would certainly step up the governance effort about what happened in the governance of the corporation.

But it's a big hypothetical, Dear added.

James McCaughan, CEO, Principal Global Investors, said if the facts in the case were established, it would lead to quite a lot of change at Goldman Sachs.

They are almost like Robin Hood in reverse. They are the people who made money out of the poor to give to the rich. Politically that is not a good position to be in, McCaughan said.

McCaughan said if the SEC were to win the suit, it would lead to other lawsuits and perhaps even a criminal case.

One client was concerned whether the case will be used to justify financial reform.

Kenneth Griffin, the chief executive of hedge fund Citadel Investment Group, said on the sidelines of the conference it should not be used to push through financial reform and doing so would be childish.

But lawyer Cohen said he thought the SEC's action would have little, if any, impact on the legislative process.

Some clients, such as Citadel, and private equity firm Blackstone , have publicly vowed to stand by the investment bank and remain clients.

Griffin, who said his firm would absolutely remain a client of Goldman Sachs, described the investment bank as a top notch organization.

Do they have a problem here?, said Griffin. The SEC thinks so and we'll let the courts decide. From my personal experience, Goldman Sachs has been a very solid partner of Citadel. (Editing by Muralikumar Anantharaman)